The Pound remained weak on fears of a ‘Hard Brexit’, while the US Dollar rebounded after the previous day’s scheduled market closure caused a slump in demand.

Industrial Production Statistics Fail to Help Euro Recover

12.15, 12/10/2016: Suggestions that loose European Central Bank (ECB) monetary policy will persist continues to dominate the Euro exchange rate movement today, despite positive industrial production figures from the Eurozone. Monthly output expanded by 1.6%, while annualised output increased 1.8%; above forecasts in both cases. Regardless, the Euro remains in negative territory versus the US Dollar, although the Pound is weakening once more, allowing the common currency to make some rare advances today.

09.56, 12/10/2016: The Pound is strengthening today on the back of a last-minute decision yesterday by Theresa May to allow Parliament to debate the Brexit – just a day after the Prime Minister firmly ruled out the prospect. Markets are hoping the greater level of parliamentary scrutiny will allow MPs to temper the government’s radical ‘Hard Brexit’ plans.

Euro Weakens as ECB Mersch Defends Loose ECB Monetary Policy

08.51, 12/10/2016: Yves Mersch, Executive Board Member of the European Central Bank (ECB), has claimed that without the current level of loose monetary policy Eurozone growth would be much weaker. By strongly linking Eurozone growth to loose monetary policy, Mersch has indicated that stimulus measures will remain at or around the current calibre, suggesting rumours the ECB planned to taper QE were too optimistic. As a result the Euro has softened versus both the Pound and the US Dollar.

Pound Back on the Decline as Government Refuses to Comment on Sterling ‘Crisis’

15.50, 11/10/2016: The Huffington Post’s Paul Waugh has reported that No.10 Downing Street refused to categorise the current Pound Sterling situation ‘one way or another’. It seems markets have interpreted the government’s silence negatively, considering it didn’t simply issue a denial when Waugh asked if the current Sterling exchange rates revealed a ‘crisis’. The Euro has been able to return to positive territory versus Pound Sterling, pushing GBP lower than the morning’s starting levels as the UK unit loses all momentum from the minor rally sparked earlier.

14.21, 11/10/2016: The Irish government has proved defiant over its low level of corporation tax, suggesting a schism in the Eurozone could form given EU officials are currently trying to crack down on tax avoidance. Ireland and the EU are already at loggerheads regarding Apple’s recent tax bill; EU lawmakers have ruled that the Irish government breached EU regulations by offering a special tax arrangement, ruling Apple must repay €13 billion in underpaid tax. Both the Irish government and Apple dispute the ruling and today’s budgetary statement suggests EU officials may face difficulty from within when pursuing other global corporations routing profits through Ireland. This has cooled appetite for the Euro, with the common currency now trending negatively against the Pound as well as the US Dollar.

Euro Gains Hold; Strong ZEW Survey Results have Little Impact

12.18, 11/10/2016: While the Euro has managed to hold the morning’s gains, the common currency has seen little further upwards momentum, despite positive data. The latest ZEW survey results have failed to lift EUR exchange rates higher even after showing a bullish rise. The economic sentiment index for the Eurozone leapt from 5.4 to 12.3, greatly eclipsing forecasts of a rise to 6.3.

New that Eurogroup has approved the latest tranche of Greek bailout funding is supporting the Euro today. Markets had worried that the Eurogroup would find the Greek government had been unable to fully implement the latest series of money-saving reforms demanded by the country’s assembled creditors.

Greek Prime Minister Alexis Tsipras continues to face problems implementing the required austerity measures, from both members of his party and his voters. The most hard-left members of his ruling Syriza party are discontented with the demands being made by international creditors; Syriza was elected to power on the back of strong anti-austerity policies. The party only has a slim majority in Parliament, making it vital Tsipras keeps his allies on board if the reforms – and therefore the much-needed bailout – are to go ahead.

News that Greece will receive the next €2.8 billion of funding has therefore boosted Euro sentiment.

Pound Exchange Rates Continue to Wallow on Hard Brexit Fears

Persistent fears of a ‘Hard Brexit’ continue to undermine the Pound, with GBP EUR exchange rates heading back towards the five-year lows struck after Friday’s ‘flash crash’. The Pound was weakened yesterday after Prime Minister Theresa May ruled out the possibility of Parliament having a vote on aspects of Brexit.

Today, new warnings over the impact of a ‘Hard Brexit’ on the Treasury and the labour market is keeping appetite for the Pound on the decline. Leaked government papers have revealed that Treasury finances would take a huge hit if the UK left the single market and switched to operating under the rules of the World Trade Organisation (WTO). According to the Guardian, the leaked report by the cabinet committee states that;

‘The Treasury estimates that UK GDP would be between 5.4% and 9.5% of GDP lower after 15 years if we left the EU with no successor arrangement, with a central estimate of 7.5%. The net impact on public sector receipts – assuming no contributions to the EU and current receipts from the EU are replicated in full – would be a loss of between £38bn and £66bn per year after 15 years, driven by the smaller size of the economy.’

News that recruitment firm PageGroup suffered a -4.7% decline in gross profits during the last three months has further weakened appetite for the Pound.

The US Dollar is making strong advances today after yesterday’s market closure due to the national Columbus Day holiday caused the ‘Greenback’ to weaken amidst thin trading volume. With significantly curbed demand for USD on the markets, commodity currencies were able to advance, but the ‘Buck’ is now staging a recovery as demand returns.

This is driving the US Dollar higher, despite comments from Federal Reserve official Charles Evans, who has suggested that the Monetary Policy Committee (MPC) should not be afraid to let inflation overshoot the 2% target. Speak at an event in Sydney, Evans stated that;

‘I see benefits to trying to engineer policy to allow for the strong possibility of inflation overshooting its target. I also think it would help to indicate that policymakers would be willing to accept the increased inflationary risk that might accompany further declines in unemployment.’

As far as a December rate hike was concerned, Evans commented that he ‘could be fine’ with tightening policy, although he wanted further economic and inflationary data before proceeding. A claim that the Fed could afford to allow inflation to overshoot targets will likely soften market expectations of an interest rate hike in December, although Evans’ views will only have a significant impact if they are echoed by other policymakers, which would suggest a shift in perspective amongst the Fed, while signalling that the doves are becoming more entrenched.

There is little left on the economic calendar for today, leaving sentiment the more likely driver of Euro, Pound and US Dollar movement.

Two Bank of England (BoE) officials – Michael Saunders and Anil Kashyap – will be appearing before a Parliamentary hearing today. Comments on the Brexit or future monetary policy could unsettle Sterling further.

The US NFIB small business optimism and labour market conditions index change figures may garner more attention than usual given the lack of other ecostats on the calendar.

EUR, GBP, USD Interbank Exchange Rates

At the time of writing, on the interbank market the Euro Pound (EUR GBP) exchange rate was trending in the region of 0.90, while the Pound Euro (GBP EUR) exchange rate traded around 1.10.

The Euro US Dollar (EUR USD) exchange rate was trending around 1.11, while the US Dollar Euro (USD EUR) exchange rate traded in the region of 0.89.

The Pound US Dollar (GBP USD) exchange rate was trending in the region of 1.22, while the US Dollar Pound (USD GBP) exchange rate was trending around 0.81.